Increase in Turnover Tax Doubles Banks' Effective Taxation to a Maximum of 87% by 2026, According to PwC
The Romanian government has announced a significant change in the turnover tax for credit institutions, increasing it from 2% to 4% starting July 1, 2025. This decision is set to have a considerable impact on the effective tax burden and profitability of Romanian banks, particularly affecting those with lower profitability margins.
According to PwC Romania, the average effective tax rate for banks is projected to rise sharply from 23% in 2024 to 29% in 2025, and further to 34% in 2026 due to the doubled turnover tax. Some banks could face an effective tax burden as high as 87% by 2026, reflecting the substantial tax load on their profits.
The scope of this 4% turnover tax applies to credit institutions with a market share above 0.2%. Out of 32 banks operating in Romania, only about 10 to 11 qualify for the lower 2% rate because they fall below this asset threshold. These are typically smaller, niche institutions or limited-activity branches. Larger banks with more extensive assets and activity will bear the higher tax rate.
For banks with lower profitability margins, the doubling of the turnover tax represents a severe challenge. Since turnover taxes are based on total revenues rather than profits, banks with slim profit margins will see a proportionally larger impact on their net earnings. This can squeeze their profitability or even lead to losses if the tax burden outweighs earnings growth.
The turnover tax increase is part of wider fiscal reforms in Romania aiming to increase transparency, align with EU directives, and raise state revenues, but it increases the regulatory and tax compliance burden on banks.
Diana Coroabă, Partner at PwC Romania, made these statements during a conference on July 8. She emphasised that the impact will be considerable for most institutions. Some banks may experience effective taxation exceeding 100%, particularly those posting losses or low profits relative to turnover.
The measure was assumed responsibility for in Parliament on July 8, and it is included in the government's first fiscal consolidation package. The increase in the turnover tax is projected to significantly impact the profitability of banks, with estimates based on 2024 profit levels and the ratio of profit tax and the additional turnover tax to gross accounting profit.
In 2026, effective tax rates for banks could reach between 27% and 87%. Only 10 to 11 of the 32 banks operating in Romania as of January 1, 2025, would qualify for the lower 2% rate. The turnover tax increase applies uniformly to banks based on 2024 market share averages. These institutions are typically niche players or limited-activity branches.
The Romanian government's decision to double the turnover tax on credit institutions could potentially reduce profitability, especially for mid-sized and larger banks with thin margins, and could lead to tougher financial conditions or calls for operational adjustments within the sector. Smaller banks below the threshold are somewhat shielded but remain subject to ongoing compliance and tax challenges.
Banks with lower profitability margins might face severe challenges due to the doubling of the turnover tax, as the higher tax rate could squeeze their profitability or even lead to losses if the tax burden outweighs earnings growth. The increase in the turnover tax is a significant business matter for various institutions, as effective tax rates for banks in 2026 could reach between 27% and 87%, with only 10 to 11 banks out of 32 being eligible for the lower 2% rate.
